Report: Net, e-commerce fueling chip resurgence

The computer chip industry this year is experiencing growth unseen since 1995, pulled out of difficult times by the Internet and e-commerce, according to a new study.

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Stephen Shankland
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The computer chip industry this year is experiencing growth unseen since 1995, pulled out of difficult times by the Internet and e-commerce, according to a new study.

Chip sales in 1999 are expected Execs expect chip rebound to be $141 billion, growth of 12 percent compared to 1998 levels, according to the Semiconductor Industry Association. After that, the organization projects growth of 15 percent growth to $163 billion in 2000, 18 percent to $191 billion in 2001, and 13 percent to $216 billion in 2002.

That's a huge difference from 1998, when sales declined 4.4 percent. However, it's not as big as 1995, when the market surged 42 percent.

"The Internet has become the predominate growth driver," the association said in a report. Personal computers drove the industry in the early 1990s, but now the Internet and electronic commerce have moved to the front and center.

In other words, people who want to get on the Net and companies that want to ride the e-commerce wave are buying more--and more powerful--personal computers, servers, and other equipment. PC sales are still going strong, and buyers now say the No. 1 reason they buy a computer is to get on the Internet.

At the same time, more and more companies are embracing e-commerce, investing in the back-end servers and other equipment needed to run a viable online campaign. Finally, companies that make the infrastructure of the Internet are also selling more equipment, which translates into more chips sold.

A number of chip companies fared well in the stock market today, at least partly because of the news. Texas Instruments, the world's largest maker of digital signal processor chips (DSPs), was up 5.45 percent to $123.375. According to the SIA, the global DSP market will more than double in the next four years from $4.3 billion to nearly $10 billion in 2002.

Meanwhile, ST Microelectronics was up 8.96 percent to 134.5625, and Intel rose 2.78 percent to $53.125. National Semiconductor rose 8.88 percent to close at 20.6875.

Even memory chipmaker Micron Technology got a boost today, rising more than 10 percent to close at 43.125.

Wilfred J. Corrigan, LSI Logic chief executive officer and SIA member, presented the midyear forecast in Redwood City, California. He said there were several reasons for the three-year decline in chips, including over-capacity, the tight inventory management by computer makers, and the Asian economic crisis.

The chip market in the Americas will remain the world's largest in the next four years, representing about one-third of chip revenues worldwide, the association found. In addition, the Asian market will recover, except in Japan, which still is affected "by the protracted domestic recession," the association said in the report. "Asia-Pacific markets...will emerge as the second-largest chip market worldwide, shedding the effects of the Asian economic crisis."

Europe will be right behind Asia-Pacific and has bounced back as a big player, the association found.

Other findings in the report include:

 Digital signal processors, which convert analog information to digital and vice versa, are the fastest-growing segment of the market. These chips are in everything from computers to microwave ovens.

 Embedded processors, also known as microcontrollers that usually run invisibly within countless electronic devices, are expected to grow at 20 percent a year.

 The market for DRAM, the most common type of computer memory chip, is expected to grow between 25 to 35 percent each of the next three years. That's good news for the hard-hit sector, which had sales of $41 billion in 1995 but only $14 billion in 1998.

 Microprocessors, the brains within computers, will outpace the industry with 16 percent growth this year. The American market for microprocessors will account for 40 percent of global revenues, "an indication of the PC culture here in the United States," the association said in the report.

News.com's Jim Davis contributed to this report.